Another reason is that Check Point is in the middle of a new hardware platform appliance. This transition can cause some existing customers to hold off purchasing. In addition, in the last quarter the management noted that some customers were enjoying getting the same performance but with less cost, thanks to the increased efficacy of the new products. Of course, in time, their requirements will increase and this pent-up demand could lead to better numbers down the line.
The immediate problem is that investors have seen with Riverbed Technology, Inc. (NASDAQ:RVBD) what can happen with product refreshes in technology. They can take at least a quarter or two to iron out, and the market takes no prisoners when companies are faced with such short-term difficulties. It took awhile for Riverbed Technology, Inc. (NASDAQ:RVBD) to recover, amid speculation over the maturity of its core WAN optimization market. Indeed, the company has been diversifying its end markets in a view to avoid over-reliance on one marketplace.
Incidentally, this is why I am cautious on F5 Networks, Inc. (NASDAQ:FFIV) right now. As with Fortinet, it reported a severe reluctance among telco carrier clients to sign off on deals in the quarter. This would be acceptable if it didn’t coincide with a product refresh. Investors can be understandably concerned that it isn’t a coincidence. In addition, it doesn’t have enough revenue outside of core application delivery controllers to make up any shortfall.
The good news
However, it wasn’t all bad news. Europe, which at 38% of revenue is a significant profit generator, saw surprisingly strong performance. Contrary to what F5 Networks, Inc. (NASDAQ:FFIV) and Fortinet said recently, it saw no specific weakness in its telco vertical. Some super high-end deals failed to close, but that can probably be attributed to the same cautious approach among tech buyers that seemed to hit International Business Machines Corp. (NYSE:IBM) and Oracle Corporation (NASDAQ:ORCL). They could easily bounce back if the political uncertainty lifts.
Probably the most bullish point relates to how deal size improved in the quarter. Management cited that 67% of transactions were at $50k and above, opposed to 60% last year, and 43 customers made transactions at over a £1 million as opposed to 34 last year. The key reasons are a higher average selling price (ASP) driven by a higher revenue product mix. Remember what I said about how Check Point prefers margins and cash flow to revenue growth?
The bottom line
This stock remains a very good value on a price/cash flow basis, and it clearly has market leading products. The increase in ASP is a sign that it is getting over its product transition and customers are starting to buy the new appliances so a bullish case can be easily built for the stock.
The problem is that the market hasn’t wanted to know anything about the stock while its revenue and product and license sales growth are slowing. That may change this year because comparisons are getting easier, but I think this company is going to have to come out and declare it is going for growth, and/or report some better growth numbers before buyers feel confident again.
The article A Mixed Set Of Results For This IT Security Play originally appeared on Fool.com and is written by Lee Samaha.
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